May 31, 2005, 12:13 PM — This week's highlighted research:
Tower Group. "Check 21 and remote deposit capture: Creating the virtual branch"
Financial Insights. "U.S. Check Imaging, Conversion, and Truncation Market Forecast and Analysis, 2002-2010"
Forrester Group. "Image exchange market driven by Check 21 legislation"
Banking innovations, and legislation such as the "Check 21" bill are making it easier for businesses - especially larger ones - to shuffle their money. I've written about the "Check 21" legislation before, and as a consumer, have already gotten stuck by it. As a small-time consumer, if you write a check, this innovative piece of legislation, which lets banks negotiate electronic replicas of checks, that check could clear your account in a matter of hours. At the same time, when you make a deposit, the bank can still sit on that deposit for up to ten days as usual before you get access to it. It no longer takes that amount of time to clear a check for deposit, however. The same technology that lets banks hit your account immediately, also lets banks clear your deposits immediately. When they hold your deposit for however many days as is their policy, they are not doing so because they are waiting for it to clear, they are doing so in order to play the float at your expense.
Having said that, there may still be some positives for the little guy down the road. The biggest, and only beneficiaries of Check 21 right now are the banks themselves. But big business is likely to start reaping some benefit, and one would hope that those benefits would trickle down to the small and medium-sized business segment in the future. According to Tower Group's report, businesses may in the future be able to actually generate a digital image of their checks right in their own offices, and then electronically transmit those checks to the bank for deposit. Once this capability has been perfected, the concept of a true "branchless bank" will finally be here. I do use an Internet-based bank, but making deposits is currently limited to snail mail, or one of a handful of deposit-taking ATMs from other banks. Tower believes that banks will be successful in selling remote deposit offerings to corporate customers. The initial focus is on low-volume corporate depositors, but as the process becomes perfected, banks will move towards marketing this to higher-volume depositors and SMBs as well.
Many software companies who specialize in banking solutions have already gotten into the act, with companies like Fiserv, which provides information management systems to banks, and NetDeposit, which offers Check 21 software products to banks. Fiserv, using NetDeposit's software suite, is offering printing of substitute checks, acting as a gateway to its account processing and check processing clients.
Financial Insights' study takes a look at the actual numbers -- predicting the number of paper checks that will either be imaged, converted to ACH transfers, or converted into electronic checks up until the year 2010. The study notes that it is likely to take several years for paper checks to be completely converted to electronic form, but to stay ahead of the trend -- and to stay competitive --banks need to take action now.
Forrester also notes that adoption of check imaging will be slow for a while, with only 12 percent of US commercial banks adopting check image exchange in 2004. This means for the present time, only the biggest banks --and their biggest customers --will derive any benefit from it. But, Forrester predicts that by 2008, all banks with more than $10 billion in assets will have begun implementation. There's a distinct competitive threat from today's early adopters, and banks of all sizes must jump on this bandwagon quickly, or get eaten. Ultimately, the banks that benefit the most will be not only those who use check imaging for their own convenience, but those who also offer their banking customers--all of them, even us little guys--conveniences as well. The day I can fax a deposit to my bank, and have it credited to my account immediately, will be the day I acknowledge the usefulness and wisdom of Check 21. But until banks get on the stick and start giving some of the benefits to small-time consumers like me, it's nothing but a high-tech tool to help banks make money by disservicing their customers.
